Mike Novogratz is past the point of no return.
Two days from now, his cryptocurrency-focused merchant bank, Galaxy Digital LP, will start trading on Toronto’s TSX Venture Exchange. It should be a triumphant moment for the former Goldman Sachs Group partner and a milestone for the industry, yet Novogratz is having second thoughts.
He reflects on the "frustrating" demands of Canadian regulators that dragged out Galaxy’s listing for months and trapped his investors as bitcoin collapsed and crypto fever cooled.
“If I knew what I know now, knew the crypto markets were going to swoon as much, and it was going to take so long, I might have stayed private for another year or so and then gone public," Novogratz said in a TV interview with BNN Bloomberg in Toronto. “But I don’t think it’s a mistake."
While Novogratz said he has no regrets and remains bullish as ever on blockchain’s potential to revolutionize finance, his eight-month odyssey is a cautionary tale for others looking to use Canada’s capital markets as a shortcut to going public. A U.S. initial public offering would have required at least two years of audited financials, which Galaxy doesn’t yet have. Instead, Novogratz is merging the firm with a shell company listed on the Toronto junior exchange via a reverse takeover.
Canadian mining companies have employed that process for years. More recently, the reverse-takeover route has become popular with marijuana producers and cryptocurrency startups. When Galaxy filed for approval, regulators gave the firm extra scrutiny, pushing back its trading debut from April to August.
“There was a surge of companies that listed in Canada, and they all traded really poorly," Novogratz, 53, said. “I think the regulators got a little bit more nervous and said, ‘Hey, wait a minute, let’s make sure we know what we’re seeing here’."
Regulators needed to strike a balance, said Brady Fletcher, managing director of the TSX Venture Exchange: Even though Galaxy wanted to list quickly, they had to reach a comfort level with the complexity of its corporate structure and crypto more broadly.
“There’s a layer of due diligence that goes into figuring out and understanding the business itself, which probably takes a little bit longer than entrepreneurs like Mike would like it to, but for us that’s how we maintain market integrity,” Fletcher said. “We’re excited about the upcoming listing and Galaxy is a great story."
Novogratz is a former Wall Street macro trader who made hundreds of millions of dollars buying and selling Bitcoin and Ether. He became one of crypto’s most prominent champions and decided in late 2017 to turn the business he’d started in his family office into a full-service merchant bank for the blockchain and crypto community. It would trade virtual currencies, invest in related companies, manage investment funds and advise clients on deals.
Galaxy sold shares at C$5 apiece in a private placement in January, weeks after Bitcoin peaked. The firm, which is based in New York, is finally set to start trading Aug. 1 on the TSX Venture Exchange through a separate vehicle, Galaxy Digital Holdings Ltd., under the GLXY ticker. Novogratz said eventually he intends to seek stock listings in Frankfurt, London and Hong Kong.
“We’re going to be a global company; we want to be globally traded," he said.
In addition to building out his four businesses, his plans for Galaxy include expanding in Asia and Europe and raising money for a fund based on the Bloomberg Galaxy Crypto Index. Novogratz said he hopes the firm will be cash-flow positive by year-end and predicted it will be profitable on a net-income basis by the second quarter of 2019.
The next few weeks may not be smooth sailing. Novogratz said investors could have a tough time putting a value on Galaxy’s illiquid assets, and it’s “unrealistic” to expect that the shares will trade at the January price now that Bitcoin has plunged about 40% since then and demand for crypto investments has softened.
Hive Blockchain Technologies Ltd. is a case in point. The Vancouver-based crypto miner has plunged 83% from its November peak, after it listed last year on the junior bourse via a reverse takeover.
“Unfortunately, the Canadian capital markets aren’t roaring anymore," Novogratz said in the interview. “I have faith that they will come back."
